Car finance: Being in a negative equity position

Buying a car on finance is a great option for many people, but it can often be confusing and overcomplicated.

Negative equity in your car means that your car is worth less than what you still owe the finance company. 

For example, if your car is worth £10,000 but you still owe the finance company £12,500, you have £2,500 of negative equity, and you have to pay that sum to clear the debt.

This happens almost as soon as you drive your new car off of the forecourt as it begins to depreciate in value immediately. 

There are plenty of options available to you whether your car is in positive or negative equity. You can find out the position of your current car today for free by signing up to Car Credible and getting a full appraisal of your current car finance deal.

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But over time, as you start to pay off your car's finance, the difference in your car's value and what you owe decreases until you reach a point where your car is worth more than what you owe the finance company.

It's at this point that your car is in a positive equity position, meaning you have a lot of great options available to you including the option to upgrade your car, lower your monthly payments or sell your car and take the profit you have made on it, amongst other alternatives.

Deprecation in a car is typically at its sharpest in the first weeks and months of owning the car, but as you make your fixed monthly payments and reduce the loan on the vehicle, this will start to level itself out over time.

How can I find out my equity position?

Here at Car Credible, we've created a platform that identifies the optimal time to sell, refinance and renew, allowing our users to get a newer car. Our algorithm uses the finance data you provide to work out your equity position and lets you know what your next available options are.

If you're not yet in a positive equity position, we will notify you every month of your deal as it changes with every monthly repayment.

This means that you can budget how many months you have left before getting into a positive position and what you'd like to do next including the potential car you'd like, finance length, deposit, fixed monthly payment, etc.

Sign up and create an account today for free to find out your equity position in just a few minutes.

If you are in a positive equity position now, you can part-exchange your car to get into a newer vehicle, potentially saving you money, depending on the loan you wish to take it. It really does help put the control in your own hands as you can tailor a deal that suits you.

Negative equity on PCP finance

On a PCP (personal contract purchase) finance deal, it can be a little more challenging to work out your car's equity position because of the optional final payment at the end, also known as the balloon payment.

If at the end of your deal your car is worth more than the final balloon payment, then your car is in a positive equity position. If however, it's not, then you will still be entitled to hand the car back to the finance company because you'd have paid off the loan in full.


Negative equity on HP finance

Negative equity while on an HP (hire purchase) is less of an issue than on a PCP because the monthly payments are generally higher and you have no balloon payment at the end. This typically means you can pay your finance off faster and own the car outright once you've made all of those repayments.

You are likely to start seeing your equity position change from negative to positive after around two to three years of making repayments, by which point you may be tired of your car and want to get into something newer anyway.


If your personal or financial situation has changed and you're struggling to keep up with your monthly repayments, you should contact your finance provider to see if there's any way you could refinance your deal to lower your monthly payments across a longer stretch of time.

There are several options for you if you are in a negative equity position.

  1. Do nothing. If you're happy with your current car and are able to comfortably make the repayments then you can continue with your deal as normal. You will eventually get into a positive equity position where more options will become available to you.
  2. Sell or trade-in your car. You would have to make up the difference you still owe to get the car into positive equity, but if you are financially in a position to afford that then that's an option you could proceed with.
  3. Downgrade to a cheaper car. You would need to take out negative equity finance which would help to cover the difference between what you still owe and the trade-in price, plus the cost of the new car you wish to get in its place.
  4. Voluntary termination. If you’ve paid at least half of what you owe the finance company and are happy to give the vehicle back and take out a new finance deal or buy a car in full, then this could be a good option for you.

We could help you terminate your car finance deal early in order to help you upgrade your car, or simply help to save you money if you feel you're paying too much. Find out if you are eligible by checking your deal below for free. 

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